Four years ago today the JOBS Act of 2012 was signed into law by President Obama. The event was attended by a bipartisan group of both elected officials and industry advocates as Democrats and Republicans agreed on the noble legislative mission. The much-heralded law designed to improve access to capital and boost economic growth legalized various forms of crowdfunding including; Title II – accredited crowdfunding, Title III -retail crowdfunding a Title IV/Reg A+, a mini-IPO type exemption.
While the Odyssey for final rules, and fulfilment of the intent of the law, has been an elongated journey, both Title II and Title IV have experienced growing utilization.
Title III of the JOBS Act, the portion of the law that arguably captured the lion share of media attention, becomes actionable next month (May 16th). Industry expectations are for Title III to start slowly and gain momentum over time as the industry adapts – and, perhaps, improvements to the existing rules are implemented by Congress.
Regardless of your political orientation, the JOBS Act was designed to help facilitate capital formation for businesses in need of money to grow. Most companies raising capital under JOBS Act exemptions are smaller companies; the engines of economic growth and job creation. Today startups and early stage companies may promote offers (advertise) and raise capital via the internet. Investment crowdfunding is a natural evolution of finance as it will all, eventually, migrate online.
While naysayers have warned of the looming risk of rampant fraud, to date little fraud has surfaced. Critics fear that Title III may become a funding tool of last resort thus oddly pushing the least promising deals to those who can ill afford to lose money the most. Time will tell.
The industry remains in the early days of internet finance. There will be unforeseen challenges and yes, of course, inevitable acts of fraud. But this may be something to expect of a precocious 4-year-old industry as it adapts, changes and attempts to solve the shortcomings of traditional finance.